Friday, January 6, 2012

As the top chart shows, both the household and establishment surveys of jobs are telling the same story: the number of jobs continues to expand at a fairly steady pace. The unemployment rate is still very high (it would be higher still if millions of discouraged workers had not given up looking for a job), and economic growth is sluggish, but nevertheless, a little more than 3 million private sector jobs have been created in the past two years. Moreover, as with a lot of recent data releases, there is no sign in today's report of any emerging weakness.

The pace of job creation is not a strong as it should be to keep pace with the growth of the working age population and reabsorb those laid off in the past, but the economy is creating private sector jobs at about a 1.7% annualized pace, which translates into roughly 160K new jobs per month. December was a bit stronger than that, with 212K new jobs reported—more than the 178K expected, but not as much as the 325K new jobs found in the ADP survey reported yesterday. At this rate of job creation, the economy is perfectly capable of growing at a 3-4% pace (~1.7% growth in jobs plus ~2% growth in productivity).

It is encouraging to see that the public sector workforce continues to shrink, since it had grown much more than the private sector over the past decade. It's also comforting to see that growth in government spending has slowed to a crawl (up only 2.7% in the past year), as that has resulted in some important shrinkage in the size of government relative to the economy. As the public sector continues shrinking its body count and its spending relative to GDP, this returns resources to the more productive private sector and should allow stronger overall growth in the future.

Actually, Market Monetarism is accessible, and there is a not bad Wikipedia entry on it.

In a nutshell, you target nominal GDP growth through a transparent and explicit monetary policy.

In today's world, the Fed would say, "We are targeting 7.5 percent nominal growth in GDP, and we will buy $100 billion a month in bonds, keep interest rates where they are, and limit interest on reserves until we get to that growth level for three quarters running, Then we will re-assess, and publicly reveal the next course of action."

(I am short-handing much).

There is not threat of "hyper-inflation" as the upper limit targeted would be 7.5 percent. Obviously, with the USA economy currently in deflation (see latest two CPI readings, or declining unit labor costs, or declining real estate values, or a Dow Jones at 1999 levels) the threat is not inflation.

People have been braying about inflation so much they have not recognized the true modern threat to the USA economy and that is Japan-itis.

To be honest, yes Market Monetarists do call for mild inflation to handle something called sticky wages.

I advocate mild inflation now to help deleverage the economy and reflate real estate values (loans are made in nominal dollars). In Japan real estate values have fallen for 20 years counting, resulting in ever-worse bank balance sheets.

What you have now is "theo-monetarism."

Theo-monetarism, as practiced, is resulting in recessionary deflations, and a Japan-like economy.

Japan has an extremely strong yen. japan has had 15 percent deflation in the last 20 years. Japan's manufacturing output has fallen 20 percent in that time period, while stock and equity markets cratered by 80 percent.

You call that theo-monetarism. A faith that tight money works, despite abundant empirical evidence to the contrary.

Based on withholding tax data, I also knew November would be revised downward, and October would be revised upward, though I was expecting a larger upward revision to October. Hard to say how December's will be revised.

@Benjamin, the Federal job numbers you cite are the center of gravity for current fiscal and monetary policy -- everything the Fed and Congress has done in the past few years has been designed to protect Federalism itself -- the only people who are enjoying a "pass" from the ongoing Main Street depression are everyone you refer to in your numbers, plus the defense establishment at large -- again, Federal (and state) workers plus the defense establishment are the tacit "crown jewels" of Washington politics today...

For jobs, I only look at employment to population (over 16 years old)now. Unemployment figures are political. See dshort’s chart. We are back to the employment ratio from the end of WWII to 1980 (roughly). This 58.5% is normal without stimulus, I am guessing. The 65% high is due to stimulus. Humphrey-Hawkins passed in 1978. The stimulus started after Volker put the country into a recession completely ignoring the new law.

Thanks Benjamin, you have given me a good start on a train of thought that I am skeptical of.

I don't know where you're getting your employment-to-population ratio from. The BLS data shows the employment-to-population ration unchanged at 58.5% compared to November, and up by 0.2% compared to December of last year.

I mis-spoke. While I think unemployement figures are manipulated, total jobs, non-seaonally adjusted compared to a year ago, is a positive indicator of the health of the economy. It doesn't tell you the quality of jobs nor if there are enough jobs but the quantity of jobs continues to increase.

I place a high value on technology defense spending.

As a disabled vet drawing on VA medical resources, I am one of the 'entitled' and am preparing for the inevitable budget cuts. The strains already exist at my hospital center. It is what has to happen. Medicare next.

If you're using the unadjusted numbers to make your conclusion about the direction of the labor market, you might want to pay attention to what the unadjusted number of employed always does between November and December: It goes down. Thus, your conclusion that things got worse in December based on that figure is fallacious, because it always gets worse in December on an unadjusted basis.

Karl Denninger does the same thing all the time, and it's blatantly dishonest. He cites the unadjusted figures when it suits him, but when the same figures show something getting better, they are brushed aside or ignored.

@Unknown, the US employment to population ratio improved over the 12-month period ending in December -- what's wrong with that conclusion? Quibbling about adjusted vs unadusted is best resolved with the raw data, at least in my opinion -- use the seasonally adjusted data if that is more useful for you -- incidentally, my chart linked above reports the annual change as of December each year -- I think you will find the reporting in order.